Health Insurance: HMOs (Managed Care Policies)

When HMOs were first started in the middle of the last century in California, they were called Pre-Paid Health Plans. HMOs were used as a way to help attract miners to the fields by providing "cradle-to-grave" health care for a set fee by the company's doctors in the company's health facilities.

The current popularity of HMOs in the United States traces back to the 1970s and 1980s when costs of medical care spiraled out of control under the traditional "indemnity" model of health insurance then in effect.

In response, the insurance companies turned to Managed Care.

The first extensive use of Managed Care in the U.S. was in the form of adding PreCertification to indemnity health insurance policies. Doctors and hospitals were required to "pre-certify" non-emergency hospital admissions and certain, expensive out-patient procedures before they were performed. The insurance company then determined if the proposed care was appropriate and necessary. If so, the company authorized the treatment. If not, the company was able to state before the care was given that it would not be paid for by the insurance company.

PreCertification was used mainly to reduce unnecessary or unnecessarily long hospital confinements.

The next logical step was the move to HMOs.

The move to HMOs was helped by the federal government. The Health Management Organization Act of 1973 ("HMO Act") required that an employer offering health insurance must include an HMO type policy as part of its insurance program.

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